11 ms·

If Greece should have its own currency, why not U.S. states?

14 points by spottiness 15y ago

teyc 15y ago
Actually, the problem is harder. For instance, in Australia, those working in the resources sector are enjoying a boom while the rest of the economy is in the doldrums. The so called two-speed economy means that the Reserve Bank has a difficult time controlling inflation by means of interest rate.
- nhaehnle 15y ago
  This is actually one of the most important arguments in favour of using fiscal policy for employment and inflation targeting. Monetary policy (i.e. the interest rate) is just such a blunt tool, and its effects are really not that well understood.
  - teyc 15y ago
    It is politically very difficult, because the government is then seen to be putting brakes on the most promising sector in the economy.
ignifero 15y ago
Each US state is not a single economy, whereas Greece is an independent economy with pegged currency. Multi-speed economies exist in many countries (believe it or not, even inside greece).
- PanosJee 15y ago
  and this is exactly the problem of EU. Single currency without common economy. Greece has a strong currency but a weak economy. It does not work!
rrrazdan 15y ago
Because US has intra-state fiscal transfers. Money is transferred from one state to another, indirectly. So richer states in some senses subsidize the poorer states. And they can borrow based on their combined financial outlook.( aka Federal Bonds). So you have a fiscal policy that is somewhat cohesive, a monetary policy that is completely cohesive. And this is why US states cannot have different currencies. Besides long story short, inter state trade would be severely burdened by different currencies. One of the primary reasons for Euro was to facilitate trade.
- sethg 15y ago
  Also, when one part of the country is doing poorly, it benefits from Federal taxes paid by people in wealthier parts—e.g., no matter how much Michigan’s state budget is in the toilet, Michigan’s senior citizens will still get their Social Security checks. The eurozone has the worst of both worlds: Greece can’t devalue its currency to alleviate its fiscal problems and there’s no Europe-wide social safety net to assist Greek people who are being screwed.
  - roel_v 15y ago
    No, that is orthogonal to the currency issue, you can have the same currency and no wealth transfer or different currencies and wealth transfer.
    - nhaehnle 15y ago
      As the Greece example shows very clearly, this does not work in the long run. By the way, this is also the reason that the gold standard failed. The gold standard was essentially a currency shared by the entire world. This had some advantages for international trade, namely no or reduced exchange rate risks. However, differences in how productivity developed in different countries ultimately led to countries being squeezed out of money to the point where politicians either had to default or rule by violence against their own citizens. A currency cannot survive for very long unless there is a significantly sized central authority that balances inequalities and acts in the interest of all citizens of the currency zone.
wccrawford 15y ago
I expected an interesting debate about currency and unfairness between states, and instead I find someone's ideas on how to screw retired people out of what they've earned.
toddh 15y ago
Why are states the magical unit? How about towns? Neighborhoods? Around banks? This was the situation before the republicans created a national currency during the civil war. Isn't attaching currencies to physical locations a little old fashioned?
- lucasjung 15y ago
  States are sovereign entities, the others are not. However, under the Constitution states give up some of their sovereign rights, among them the right to mint their own currency.
  - toddh 15y ago
    States were sovereign entities before the Constitution. Now power is derived from the people, not states.
    - lucasjung 15y ago
      That is orthogonal to the issue of sovereignty; in fact, many of the framers firmly believed at all political power is derived from the consent of the governed, regardless of the form of government. They wanted to build a government where that consent is given through ballots rather than taken through coercion. The states are sovereign entities, and one of the most important features of the Constitution is that it preserved their sovereignty even as it subsumed them into a single nation. That is what the word "federal" means: a single nation made up of many sovereign states.
mdasen 15y ago
Having one's own currency doesn't simply solve the problem. Plenty of Latin American countries know this first hand. Basically, having your own currency allows you to print however much money you want to print. By issuing more currency, you as the state get to take resources from people without having to tax them. As the number of dollars increases, the value of each dollar decreases.* If you do this too much, you get hyperinflation. Because you are printing so much money, the value of that money drops at a ridiculous rate. I actually had an econ professor in college from Peru who said that during the worst days, a shopkeeper would close shop to get sales into the bank because if they waited until the end of the day, they would have lost so much value. Car companies would want to not sell cars, because the cars held their value more than currency did - so much for losing money when you drive it off the lot. It is really hard to break out of a cycle of high inflation. Once the trust in the system is lost, it can be really hard to get it back. Many countries, in order to rid themselves of this hyperinflation, start using the currencies of other countries that manage their currency properly. For example, Panama, Equador, and El Salvador all use the US Dollar as their currency. Zimbabwe has started using a mixture of foreign currencies for trade. That eliminates the chance for them to print more money when they need and they have to rely on any loans they might get - which would be minimal given their credit ratings. A devaluation of your currency and the inflation that come with it like that isn't good. It does allow you to get out of certain debts more easily, but it also means that investors don't want to invest or lend to you. If you have a history of using a trick to get out of your obligations, lenders don't want to lend to you. For most intents and purposes, such a huge devaluation is a sovereign default - which is what people are worried about with Greece. If you were able to pay back a fraction of your mortgage (say, 10%) through some devaluation, it wouldn't be a default, but it would mean that the bank was getting back a fraction of the money they had given you - even if the nominal value was the same. So, from the bank's perspective, it means they didn't get paid back even if they nominally did. (And if there were a way for individuals to do this, banks would treat it as harshly as a bankruptcy when making future credit decisions). So, this wouldn't even be good for Greece. It might have meant that Greece would have seen inflation of 20%, 50%, 1000% per year for the past decade and their economy would have faltered along the way rather than them being able to hide the debt through funky accounting, but it wouldn't be a good option. Likewise, being able to print extra money isn't a boon for states either. Government revenue should come from taxes. A little can come from money printing in a way that is ok,* but taxes need to be the real source of government revenue. If you spend much more than you take in (a certain amount of debt for investment can be quite wise), you're going to get into trouble whether you can print your own money or not. * In a manner of speaking. If the number of dollars increases at the rate of economic increase, the value of each dollar stays exactly the same (and helps protect against deflation). It's a smaller fraction of the pie (economy), but the pie is now larger.
Typhon 15y ago
It's a matter of national sovereignty. Greece has it, or should have it, as it is one nation. American states don't have it, as the USA are one nation (that's the idea, anyway).
ctdonath 15y ago
FWIW: US Constitution, Article 1, Section 10 - Powers prohibited of States: "No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts ..."
maurycy 15y ago
Given that money is created by debt[0], one could say that U.S. states already have their own currencies, i.e. IOUs. Such currencies are not more real than bits in MasterCard's databases. A much harder question, though, to ask is what, after all, is currency? [0]. http://en.wikipedia.org/wiki/Money_creation http://en.wikipedia.org/wiki/Money_creation
Gustomaximus 15y ago
I think 3 good, (but not necessarily main reasons) to NOT have state currencies are; 1)It will add a big cost to the economy of doing business. Every time you try and do business between states you will have to change money and some banker will take a small cut on the transaction. And this will add up large amounts it cost the economy. This is a large reason why Europe went to the euro. 2) We have seen how some states manage their affairs. If they are in control of currency they have the potential to make an even bigger mess of things. Bad management will end up with a Zimbabwe type hyper inflation. This risk is reduced in a larger centralised organization... though arguably the US gov is doing this too much right now... 3) It is symbolic of unity.
gravitronic 15y ago
A currency post without a bitcoin reference? Anybody holding btc, sell now: the bubble is over.
nazgulnarsil 15y ago
it's so cute when modern scholars reinvent things. pro tip: we already had a war over this.

14 points by spottiness 15y ago

teyc 15y ago

Actually, the problem is harder. For instance, in Australia, those working in the resources sector are enjoying a boom while the rest of the economy is in the doldrums. The so called two-speed economy means that the Reserve Bank has a difficult time controlling inflation by means of interest rate.

nhaehnle 15y ago
This is actually one of the most important arguments in favour of using fiscal policy for employment and inflation targeting. Monetary policy (i.e. the interest rate) is just such a blunt tool, and its effects are really not that well understood.
- teyc 15y ago
  It is politically very difficult, because the government is then seen to be putting brakes on the most promising sector in the economy.

ignifero 15y ago

Each US state is not a single economy, whereas Greece is an independent economy with pegged currency. Multi-speed economies exist in many countries (believe it or not, even inside greece).

PanosJee 15y ago
and this is exactly the problem of EU. Single currency without common economy. Greece has a strong currency but a weak economy. It does not work!

rrrazdan 15y ago

Because US has intra-state fiscal transfers. Money is transferred from one state to another, indirectly. So richer states in some senses subsidize the poorer states. And they can borrow based on their combined financial outlook.( aka Federal Bonds). So you have a fiscal policy that is somewhat cohesive, a monetary policy that is completely cohesive. And this is why US states cannot have different currencies. Besides long story short, inter state trade would be severely burdened by different currencies. One of the primary reasons for Euro was to facilitate trade.

sethg 15y ago
Also, when one part of the country is doing poorly, it benefits from Federal taxes paid by people in wealthier parts—e.g., no matter how much Michigan’s state budget is in the toilet, Michigan’s senior citizens will still get their Social Security checks. The eurozone has the worst of both worlds: Greece can’t devalue its currency to alleviate its fiscal problems and there’s no Europe-wide social safety net to assist Greek people who are being screwed.
- roel_v 15y ago
  No, that is orthogonal to the currency issue, you can have the same currency and no wealth transfer or different currencies and wealth transfer.
  - nhaehnle 15y ago
    As the Greece example shows very clearly, this does not work in the long run. By the way, this is also the reason that the gold standard failed. The gold standard was essentially a currency shared by the entire world. This had some advantages for international trade, namely no or reduced exchange rate risks. However, differences in how productivity developed in different countries ultimately led to countries being squeezed out of money to the point where politicians either had to default or rule by violence against their own citizens. A currency cannot survive for very long unless there is a significantly sized central authority that balances inequalities and acts in the interest of all citizens of the currency zone.

wccrawford 15y ago

I expected an interesting debate about currency and unfairness between states, and instead I find someone's ideas on how to screw retired people out of what they've earned.

toddh 15y ago

Why are states the magical unit? How about towns? Neighborhoods? Around banks? This was the situation before the republicans created a national currency during the civil war. Isn't attaching currencies to physical locations a little old fashioned?

lucasjung 15y ago
States are sovereign entities, the others are not. However, under the Constitution states give up some of their sovereign rights, among them the right to mint their own currency.
- toddh 15y ago
  States were sovereign entities before the Constitution. Now power is derived from the people, not states.
  - lucasjung 15y ago
    That is orthogonal to the issue of sovereignty; in fact, many of the framers firmly believed at all political power is derived from the consent of the governed, regardless of the form of government. They wanted to build a government where that consent is given through ballots rather than taken through coercion. The states are sovereign entities, and one of the most important features of the Constitution is that it preserved their sovereignty even as it subsumed them into a single nation. That is what the word "federal" means: a single nation made up of many sovereign states.

mdasen 15y ago

Having one's own currency doesn't simply solve the problem. Plenty of Latin American countries know this first hand. Basically, having your own currency allows you to print however much money you want to print. By issuing more currency, you as the state get to take resources from people without having to tax them. As the number of dollars increases, the value of each dollar decreases.* If you do this too much, you get hyperinflation. Because you are printing so much money, the value of that money drops at a ridiculous rate. I actually had an econ professor in college from Peru who said that during the worst days, a shopkeeper would close shop to get sales into the bank because if they waited until the end of the day, they would have lost so much value. Car companies would want to not sell cars, because the cars held their value more than currency did - so much for losing money when you drive it off the lot. It is really hard to break out of a cycle of high inflation. Once the trust in the system is lost, it can be really hard to get it back. Many countries, in order to rid themselves of this hyperinflation, start using the currencies of other countries that manage their currency properly. For example, Panama, Equador, and El Salvador all use the US Dollar as their currency. Zimbabwe has started using a mixture of foreign currencies for trade. That eliminates the chance for them to print more money when they need and they have to rely on any loans they might get - which would be minimal given their credit ratings. A devaluation of your currency and the inflation that come with it like that isn't good. It does allow you to get out of certain debts more easily, but it also means that investors don't want to invest or lend to you. If you have a history of using a trick to get out of your obligations, lenders don't want to lend to you. For most intents and purposes, such a huge devaluation is a sovereign default - which is what people are worried about with Greece. If you were able to pay back a fraction of your mortgage (say, 10%) through some devaluation, it wouldn't be a default, but it would mean that the bank was getting back a fraction of the money they had given you - even if the nominal value was the same. So, from the bank's perspective, it means they didn't get paid back even if they nominally did. (And if there were a way for individuals to do this, banks would treat it as harshly as a bankruptcy when making future credit decisions). So, this wouldn't even be good for Greece. It might have meant that Greece would have seen inflation of 20%, 50%, 1000% per year for the past decade and their economy would have faltered along the way rather than them being able to hide the debt through funky accounting, but it wouldn't be a good option. Likewise, being able to print extra money isn't a boon for states either. Government revenue should come from taxes. A little can come from money printing in a way that is ok,* but taxes need to be the real source of government revenue. If you spend much more than you take in (a certain amount of debt for investment can be quite wise), you're going to get into trouble whether you can print your own money or not. * In a manner of speaking. If the number of dollars increases at the rate of economic increase, the value of each dollar stays exactly the same (and helps protect against deflation). It's a smaller fraction of the pie (economy), but the pie is now larger.

Typhon 15y ago

It's a matter of national sovereignty. Greece has it, or should have it, as it is one nation. American states don't have it, as the USA are one nation (that's the idea, anyway).

ctdonath 15y ago

FWIW: US Constitution, Article 1, Section 10 - Powers prohibited of States: "No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts ..."

maurycy 15y ago

Given that money is created by debt[0], one could say that U.S. states already have their own currencies, i.e. IOUs. Such currencies are not more real than bits in MasterCard's databases. A much harder question, though, to ask is what, after all, is currency? [0]. http://en.wikipedia.org/wiki/Money_creation http://en.wikipedia.org/wiki/Money_creation

Gustomaximus 15y ago

I think 3 good, (but not necessarily main reasons) to NOT have state currencies are; 1)It will add a big cost to the economy of doing business. Every time you try and do business between states you will have to change money and some banker will take a small cut on the transaction. And this will add up large amounts it cost the economy. This is a large reason why Europe went to the euro. 2) We have seen how some states manage their affairs. If they are in control of currency they have the potential to make an even bigger mess of things. Bad management will end up with a Zimbabwe type hyper inflation. This risk is reduced in a larger centralised organization... though arguably the US gov is doing this too much right now... 3) It is symbolic of unity.

gravitronic 15y ago

A currency post without a bitcoin reference? Anybody holding btc, sell now: the bubble is over.

nazgulnarsil 15y ago

it's so cute when modern scholars reinvent things. pro tip: we already had a war over this.